Wasserman's, Inc. v. Township Of Middletown

137 N.J. 238, 645 A.2d 100 (1994).

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Nature of the Case

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Facts

D owned a parcel of approximately 20,500 square feet in a commercial area. From 1948 to 1968, P leased the property from D for a 3,200-square-foot general store. In 1969, D advertised for bids to lease the property, which D evaluated at $47,500. P submitted the sole bid. D rejected that bid and again advertised in May 1970. P submitted the only bid. P and D signed a lease May 21, 1971. A cancellation clause in the lease stated that if D canceled the lease, it would pay P a pro-rata reimbursement of improvement costs. Payment was to be made on the total value of all improvements made by Pat time of construction x (multiplied by) years remaining in Lease term (divided by) total number of years in Lease term.' The second half of the clause also required D to pay 'twenty-five percent of the lessee's average gross receipts for one year (to be computed by + (adding) the lessee's total gross receipts for the lessee's three full fiscal years immediately preceding the time of cancellation of the lease and (dividing by) 12 (twelve)).' The fixed monthly rental was $458.33, with no escalation for the entire thirty-year term. P made improvements spending $142,336.01 and expanded the store to 5,200 square feet. In August 1973, P sold 'the business,' and sublet the premises to Rocco Laurino doing business as Jo-Ro, Inc. (Jo-Ro). Jo-Ro was to pay P a monthly rent of $1,850. In 1977, Samuel Krawet and Arnold Kornblum purchased from Laurino all of the Jo-Ro stock for $95,000. D sent a letter to P stating that D would permit subletting the property to Jo-Ro. On December 7, 1987, D canceled the lease effective December 31, 1988. Krawet and Kornblum vacated the premises, leaving them without a place for their business. D then sold the property at public auction, for $610,000, nearly thirteen times the value of the property at the time D had leased it to P in 1971. Ps sued for breach of contract, seeking in part damages under the terms of the lease. D filed an answer and counterclaim seeking a declaration of invalidity of that part of the cancellation clause that required D to pay as damages twenty-five percent of the lessee's gross receipts. The trial court upheld the clause and awarded $346,058.45 in damages. The appellate division affirmed, and the state supreme court granted review.